The FSB stock group has seen a sharp uptrend over the last few months based on price performance relative to our proprietary 197 stock groups. Over the last 12 weeks, its group rank has increased from 22 to 2, currently.
The FSB stock group, which consists of 161 stocks, has risen about 25% on an YTD basis. Out of them, 38 of the stocks have given an YTD return of more than 35%. A majority of the companies in this group are small cap or micro-cap stocks. Several micro-cap stocks have poor fundamentals, including volatile earnings, not ideal for calculated investments. Some of them even have a negative beta. However, currently there are eight stocks having a market cap of more than $100 million, with relatively low liquidity risk that has given a high average YTD return of about 47%. Some of these stock prices are supported by strong institutional sponsorship. This stock group has been on an uptrend for a while now, and we believe there is still a big opportunity to make capital gains, as few top quality players will continue to benefit from the ongoing industry growth.
Lay of the Land
Equity investing has always been associated with high riskiness and the proverbial doom and crash in India. However, the trend is changing in recent times. Increased availability of information about investing, and greater digital marketing, has led to more and more individuals taking the systematic investment plan (SIP) route. Also, traditionally, assets like gold and real estate are the preferred form of investments, partly due to the cash nature of the transactions. With the government tightening screws on taxing and accounting income, retail participation should improve in the long run. The number of SIP accounts has gone up by about 30% in the last 12-15 months alone. SIP monthly inflow volume now stands at about 3,500-4,500 crore, as opposed to about 1,000-1,500 crore in 2013.
Several mutual fund firms have kept sub-5% of their investible funds in cash owing to valuation concerns. However, gradually in a matter of few weeks and quarters, equity advisory houses tend to re-rate stocks higher. Re-rating of stocks and their valuation has become more frequent recently, which in turn can spur investment. Several brokerages are now waking up to the fact that higher P/E ratios are the new normal, as they are warranted by a fundamentally strong economy. Currently, the Indian stock market capitalisation to GDP ratio is approximately 98%, compared to 149% in 2007. With only about 250 F&O available out of approximately 4,200 individual securities, shorting opportunities are limited. Increased inflow of SIP money could very well drive and support quality stocks in a growing economy. A positive outlook of the economy will encourage greater trading activity and participation in equity markets, benefitting the FSB stock group.
According to the Association of Mutual Funds in India (AMFI), the AUM of the Indian MF industry grew 9.8% from INR 17.54 lakh crore in March 2017 to an all-time high of INR 19.26 lakh crore in April 2017. The AUM has tripled in the last five years. The total number of folios as on April 2017 stood at 5.61 crore, while the number of folios under Equity, ELSS, and Balanced schemes, which is predominantly invested in by the retail segment stood at 4.51 crore. Individual investors accounted for about 46% of the total mutual fund assets in 2015. The participation of retail investors in the mutual fund industry has increased by 4% to 50% at INR9.28 lakh crore, currently. High net worth investors (HNIs) account for more than 25% of the total retail AUM. (Source: AMFI).
Despite the recent surge in mutual fund investments, the level of mutual fund ingression is low in terms of value and number of accounts in India. The number of mutual fund folios is only about one-seventh and one-eighth of the total number of life insurance policies and savings accounts, respectively. The industry in a nascent stage, and poised to clock steady growth rates for the foreseeable future. Recently, the government raised EPFO’s permissible investment limit in equities from 10% to 15% of its investible deposits. The EPFO will invest INR 20,000 crore in equities during 2017-2018. This will further boost the equity market.
The AUM has 30% in the recently completed financial year. 38 stocks in the strong FSB stock group have given an YTD return of more than 35%. What caused the sudden surge? Who are the stock leaders (fundamentally and technically) in this group that you should invest in?
I don’t commonly comment but I gotta tell thankyou for the post on this great one : D.